why I sold 1/2 my AYX

Investment Analysis Clubs Saul’s Investing Discussions
#1

I first purchased AYX in Dec. of 2017 so it had risen to be the second biggest position for me, double a normal position.

I know this is a contrarian view, like I’m the only one that has it, and there are a lot of proven great investors on this board who love AYX, so I’m most likely wrong.

I have a bunch of small reasons, that added together give me the opinion that AYX has more risk than I would like for my 2nd biggest position, so it was bothering me.

The reasons

  • The recent Gartner report showed them regressing to Challenger from the Leader quadrant (losing some competitive advantage)

  • 37 total vendors in their market, my WAG is they have between 10-15% market share (not a clear leader yet)

  • 3 European competitors, Knime, Rapidminer, and Dataiku, all have better customer recommendation numbers, product capability ratings. All 3 are private and range in size from 1/3 to 3/4 the size of AYX (more good competition than I thought)

  • When they compete with AYX, they have win rates of even, 60%, and 85%

  • I think all 3 will continue to expand their operations in the US giving AYX more competition

  • Knime and Rapidminer are clear leaders in the magic quadrant, Dataiku made a huge improvement

  • The CEO says they “don’t see any competition” when clearly they are

  • The recent accounting firm change was a little odd. Why does it take all the way until the year is complete to realize there could be a conflict of interest? Management should have spotted this way before.

  • The report of the accounting change shows some kind of “material weakness” that was corrected earlier in the year.

  • If you are going to release preliminary numbers, why would you just do it in a SEC report, not a press release? It’s like they were trying to hide it.

  • the preliminary number might change when they switch to the 606 accounting standard

  • Glassdoor shows a weak rating of 3.6/5, only 61% employee recommendation of company, and some not so good recent reviews

  • preliminary rev. growth of 53% is great, but I was expecting the growth to keep accelerating for such a high valuation

Bottom line, I think they have lost some competitive advantage, I have less confidence in management, and there is a lot more good competition than I thought. And I am probably wrong (and keeping 1/2 my position for now), because the market is so big it won’t matter, but I have to listen to my gut.

Jim

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#2

And I am probably wrong (and keeping 1/2 my position for now), because the market is so big it won’t matter, but I have to listen to my gut.

That’s right, Jim. Never go against your gut. The competitive issues to me are not as concerning as your lack of trust in management. You’ve definitely given me some food for thought. Especially:

* If you are going to release preliminary numbers, why would you just do it in a SEC report, not a press release? It’s like they were trying to hide it.

I don’t claim to know the protocol for such things, but it did seem a little weird.

Thanks again,
Bear

#3

3 European competitors, Knime, Rapidminer, and Dataiku, all have better customer recommendation numbers, product capability ratings. All 3 are private and range in size from 1/3 to 3/4 the size of AYX (more good competition than I thought)

They all looks like direct competitors to AYX. But maybe they are not because of use case, etc. So I trust management when they say they didn’t see much competition.

#4

Thanks Bear.

One other thing I forgot to mention. If you go to their website, the slogan is “become a bada** analyst”.

It’s like their marketing to a 20 something crunching numbers in their basement.

I want them to focus on big business, is that a marketing campaign to a business?

It’s like they are trying too hard to be cool and hip.

Just weird to me.

Jim

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#5

I want them to focus on big business, is that a marketing campaign to a business?

They have some fairly big businesses as customers…

https://www.alteryx.com/community/customers?industry=All&…

Brian

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#6

Good post Jim. Was considering many of the same factors.

Where do you see that the smaller players have 60-85% win rates?

And just to take the other side on some of your points:

The recent Gartner report showed them regressing to Challenger from the Leader quadrant (losing some competitive advantage):

Alteryx barely lost ground. And the reason was because it was falling behind on some machine learning features. The company’s competence is with data citizens, not the high end of the market.

The recent accounting firm change was a little odd. Why does it take all the way until the year is complete to realize there could be a conflict of interest? Management should have spotted this way before.:

I kind of viewed this as a positive. I haven’t seen an accounting firm give up audit fees so they can evangelize for a company. Alteryx’s software must be pretty solid then.

The CEO says they “don’t see any competition” when clearly they are

From the CEO “there’s almost no competition in the data prep world given the longevity we’ve had in one defining the space in building up the end-to-end capabilities of data prep.”

In data prep, full cycle, they aren’t seeing competition. I think this could be a function of the difference in target customer Alteryx is going for. I hear your caution though, this is the first thing that popped into my mind while reading the Gartner report.

If you are going to release preliminary numbers, why would you just do it in a SEC report, not a press release? It’s like they were trying to hide it.

This is one that I’m struggling with. Maybe something to do with PwC??

Thanks Jim, you bring up some valid reasons. The real world evidence has to back up management’s rhetoric. I feel it is too hard to tell and the Gartner report is not a defining piece of evidence for me.

Thanks,
Fish

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#7

Taking a closer look at the Magic Quadrant and comparing to the previous one. So here’s the new one.

https://pages.alteryx.com/analyst-report-2019-gartner-mq-dat…

And here’s the one from earlier in 2018 that also compares to the previous one from 2017.

https://www.kdnuggets.com/2018/02/gartner-2018-mq-data-scien…

AYX barely moved in the newest except upwards by a lot. Less than a dot width to the left. Is part of that dot still in the “Leader” quadrant?

But they moved upwards on “ability to execute” by a lot, leaving everybody else much behind. RM pretty much didn’t move while KNIME dropped downwards fairly substantially.

Whatever all that means.

Data Analytics and Machine Learning is but one part of their platform. The Alteryx platform is largely about data preparation and then analysis. Many of the products that Gartner includes in the reviews for this subset are add ons I believe. Promote, Server, Connect, etc. Designer I believe is the basic platform.

So Gartner has two types of reviews and comparisons for Alteryx that has different reviews and a different set of alternative vendors. Data Preparation and the aforementioned analytics and machine learning.

https://www.gartner.com/reviews/market/data-science-machine-…

https://www.gartner.com/reviews/market/data-preparation-tool…

Alteryx is at the top for both lists.

But we should probably do some checks on these other competitors. They have never bubbles up to the top. But if AYX’s position in the quadrant made them a good investment one or two charts ago I don’t see how that’s changed.

Bottom line, they are crushing it. There’s no evidence that’s changing.

Darth

Added at all the big AYX dips over the last year

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#8

Jim,

Great write-up regarding your concerns.

One point of clarification though, in situations like this, it is the accounting firm’s responsibility to identify and remediate the conflict of interest. This would not be the responsibility of management. The SEC audit requirements around independence are very strict and it doesn’t surprise me that it was PwC’s conclusion that they were conflicted out.

I agree with others that stated that in PwC’s mind, it was better to use AYX’s product than it was to have them as an audit client. Hopefully that is because AYX provides a great service and its not because they’re a bad audit client…

Kevin

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#9

Hi Fish-

I think all your points are valid.

I used the Gardner peer insight report to get the competitor information.

Here is one for alteryx vs Dataiku

https://www.gartner.com/reviews/market/data-science-machine-…

One big assumption I have made is this small data set is representative of all customers. I think this is a big assumption, so that is why I said these are small concerns for me.

I picked Dataiku as an example because it is the smallest, at only 68 reviews. AYX has 205 reviews which I think is about 5% of its customers.

Just because Dataiku is small, doesn’t mean it has small customers. The reviews are broken down by company size and 45 of the 68 are from companies larger than $1 Billion, with 19 from companies above $30 B.

You will see AYX has a high percent of reviews from very large companies also.

To figure out win rates, I went down to customers of each and looked at who the customer also considered.

So Alteryx customers considered Dataiku 5 times but still chose AYX.

Dataiku customers considered AYX 29 times and still chose Dataiku.

Dataiku win rate is 29/34 = 85%.

Again, this is a very small data set, (and this example is the smallest),but these are large companies doing the reviews. Gardner isn’t going and asking reviews from a one person shop.

I did this with each of the top competitors.

AYX does very well against the big players like SAS, IBM, and Microsoft, not well against the smaller upstarts, all of which have large companies as customers.

So before I figured out there were 37 competitors in total, and some doing well against AYX, I loved the CEO comment of “not seeing any competition”. Now I wonder if he just being a salesman.

And in combination of all the other points in my previous post , my thinking of AYX, to use Saul’s term is a category crusher, has changed to , they are a great company in a good market, but has competition and isn’t the runaway leader yet.

Again, I am probably wrong.

Jim

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#10

I wonder what Saul is thinking about this? (Re: selling 1/2 of AYX position)

Kind regards,
John A Davis
Big Grateful Saul and Bear Fan

#11

and Jimb05 fan
:wink:

#12

talking about a contrarian view, here is one.

“The report was bad and their growth is slowing. Competition is suddenly popping out left and right so I am concerned. I don’t understand why the management did not do this or that. The management has not been so good. They are losing ground…etc…etc…etc…
So I am selling. I could be wrong but I am selling because I feel like it.”

Not to deride but that is basically the template for the sell thesis.
There is always competition even before Gartner publish this report. Before reading that you thought there were none? The question resolve around how well they are doing and how well they can do given the environment which is changing. We ought to invest in the best one. We always hope there is no competition but that is always a fantasy. The reality is that some do better than the others for various reasons. I am not sure if that would cause me to sell any of my AYX.

Certainly I am not advocating to stay in whatever happens but I find it difficult to discriminate the magnitude of the effect based on news thread of the moment. It is a matter of sensitivity but one needs to be sensitive about what is important. Can one really make any sort of discrimination based on those noises? We want to ferret out a signal in the noise but I don’t think you can do that by just building a list of qualitative pros and cons that are often arbitrary pros and cons of the moment or are things that ‘come to mind’ whenever one wants to assess the situation.

tj

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#13

Thanks for sharing and Laying out your research and thinking.

More importantly though, what did you buy that you felt better about?

Just a Fool

#14

Dataiku win rate is 29/34 = 85%

I think this is a very dangerous way to try and determine a win rate, Jimbo. How strongly did they consider AYX or another company for that matter? I consider many options every day when making patient care decisions but some much less than others. You will never know how much of a head to head this really was and you’ve already admitted the data set is very small. It is so small it’s close to meaningless IMO. Something to keep an eye on and listen for in the next CC for sure, but I’m not seeing the concern based on these findings. I’m pretty sure in the last CC they reported having 25% of the Global 2000 as customers… They are winning a lot with large customers. There are a few bones to pick with AYX but this seems like a strange hill to die on. I also had no issue with the press release. They could just as easily have buried that news in the conference call. I don’t see the concern.

I want to see their >50% growth continue but more importantly to me, this CC I want to see if international growth continues at an explosive rate. It was 99% last quarter. 99%! That’s amazing and it will be interesting to see where this number falls.

Despite those observations, I really appreciate the digging you have done. You made me go read the CC again and I saw a couple of things I missed the first go round.

MC

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#15

Don’t feel bad - I did the same a couple of weeks ago. About a lifetime ago (I guess in the late 1970’s), I had a discussion with an elementary school classmate of my grandfather’s (I figure sometime in the 1890’s) whose primary source of income was his stock portfolio. I found it fascinating that he could talk about a time before automobiles, airplanes, telephones, rtc., etc. Of particular interest to me at the time was how he fared through the 1929 crash and its decade long aftermath.

One of the things he mentioned was, whenever he had a stock which doubled precipitously, he would sell half with the logic that he was now playing with the house’s money and didn’t feel any angst if the price fluctuated down for a while.

I looked at my AYX (which had more than doubled since I acquired it), read the debates here and remembered his strategy. A reduction of stress is sometimes worth taking a chip off the table.

Good bad or ugly,
Jeff

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#16

Jim,
Nice analysis. KNIME seems to have had 100K customers in 2017 per Darth’s Gartner link. Being open source must have helped to get to those numbers. But it surely helps develop the mind share much like Mongo. Looking at the number of large customers (>1B in rev.) Knime seems to have a good proportion based on the Gartner reviews. Rapid miner seems to be favored by a greater proportion of smaller companies and Gov. agencies. Data analysis being so big I don’t think this is a winner take all market. But clear that AYX has to constantly innovate. Worth watching this competition and understand marketshare.

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#17

KNIME seems to have had 100K customers in 2017 per Darth’s Gartner link

Tex, not to quibble, but the quote is 100K Users, which may be drastically different than customers count. I imagine Alteryx has vastly more users than customers.

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